Capital Gains Tax (CGT) and the Potential Changes

What are the current rules?

As a basic outline, for the 2020/21 tax year, the annual capital gains tax allowance is £12,300. This means the first £12,300 of any released gains will be tax free, with any excess being taxed depending on your rate of income tax. For basic rate taxpayers the rate is 10% on assets and 18% on property, whilst higher and additional rate taxpayers pay 20% on assets and 28% on property.

What are the potential changes?

As detailed above the current annual CGT allowance is £12,300. One of the reported proposed changes, is to reduce this allowance to somewhere between £2,000 – £4,000. This means more of any realised gains would be taxed, depending on your tax status.

Along with reducing the allowance, it is reported that the CGT tax rates could be changed. Instead of the four rates listed above depending on your tax status, the rate of tax paid would move in line with income tax rates. Therefore, the rate of tax due would be double, if not more! 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

What if I utilise my full allowance every year?

If you take advantage of your full Capital Gains Tax allowance every year some careful tax planning may be needed if these proposed changes are given the go ahead, to avoid paying tax unnecessarily. Whilst tax wrappers such as Pensions, ISAs and Offshore Bonds can been used to protect investments from taxation, many clients still have other investments that are taxable. Therefore, the proposed changes will present significant challenges and are something that should be carefully discussed and considered.

Although these changes are not guaranteed to go ahead, those with significant potential capital gains within their taxable portfolios, those thinking about selling a buy-to-let property or a business, or those wanting to pass on their investments to future generations should be aware of the considerable impact this could have on their assets in future tax years.

How can we help?

If you’re concerned about the possibility of changes to capital gains tax rules and how it may affect your savings, please get in touch and we’ll be happy to help.

India Johnston CII Cert (FS)